March 6 (Bloomberg) -- China Petroleum & Chemical Corp., the nation’s biggest refiner, plans to boost oil-processing volume at its Luoyang refinery by 21 percent this year.
The plant in the central Henan province will process 8 million metric tons of crude, up from 6.6 million tons in 2011, when the refinery was shut for 45 days for maintenance, said Wei Wenbo, president of the facility. He spoke today in Beijing at China’s annual parliamentary sessions.
The refinery, which has no maintenance scheduled until 2016, relies on imported crude from West and North Africa, the Middle East and South America for half its needs. The other half comes mainly from the western parts of China.
Luoyang lost $10 on every barrel of oil it processed in 2011, resulting in an annual net loss of 2.6 billion yuan ($410 million), Wei said. Refining losses were 2.9 billion yuan, while the plant had a profit of 300 million on petrochemicals. Sales were 46.8 billion yuan last year and may reach 52 billion yuan this year, he said.
“Under the current system in China, it’s impossible to make profits from refining,” Wei said. Luoyang also has “geographical disadvantages” because it’s too far from oil supplies, he said, referring to Xinjiang fields to its west and oil ports on the eastern seaboard.
The Luoyang plant has crude-distillation capacity of 8 million tons a year and a splitter capable of processing 1.5 million tons of condensate annually, he said. The plant’s refining costs are 200 yuan a ton more than the China Petroleum’s average, Wei said, without being more specific.
Refiners in China face pressure on profit because they have to sell fuel at state-capped prices. Under the current pricing mechanism, the government may adjust domestic retail fuel rates when the 22-day moving average of three crude grades comprising Brent, Dubai and Indonesia’s Cinta changes more than 4 percent from the last price adjustment.
The government should adjust pump prices by taking global crude prices into account, he said. It should also consider transportation fees and a 200 yuan-a-ton margin to cover refining costs.
“That’ll bring margins to zero,” Wei said. “We’re not even talking about profits here.”
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